Morning Futures Roundup
Politics Not Production Rallies Cocoa Prices
Cocoa prices have rallied sharply the past several sessions, as traders fear the continued un-rest in the Ivory Coast could hamper Cocoa shipments out of the world's largest Cocoa producing nation. The unrest stems from a disputed election back in November and the fact that current president Laurent Gbagbo has refused to step down. This dispute has caused the European Union (EU) to impose sanctions, including baring EU ships from the main ports in the Ivory Coast.
Although any further escalation of violence could hamper supplies, other Cocoa producing nations could make up for any shortfall. Ghana is expected to produce a bumper crop, and other West African nations are still moving recently-harvested Cocoa to ports for shipment.
The recent weakness in the U.S. Dollar is also seen as supportive for Cocoa prices, but has been offset somewhat by weaker than expected Cocoa grinding in Europe. Increased hedge selling has been seen as March Cocoa reaches the $3000 per ton level, and prices may be vulnerable to a sharp sell-off should a resolution occur in the Ivory Coast in the next several days.
Looking at the daily chart for March Cocoa, we notice that after prices broke-out to the upside in early December, bullish momentum has failed to take prices higher, with the market making a series of lower highs and lower lows in a rather volatile trading environment. Cocoa bulls will argue that prices are now above both the 20 and 200-day moving averages, and the 20-day MA has crossed above the 200-day MA, which is viewed by many technical traders as a bullish signal. The 14-day RSI has moved to a neutral/bullish reading of 57.50. The December 7th high of 3140 remains strong resistance for March Cocoa, with support found at the recent low of 2821 made back on January 7th.
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